SMSFs & Property series (Part 5): Owning property through a related unit trust with your SMSF

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SMSFs & Property series (Part 5): Owning property through a related unit trust with your SMSF

SMSF & Property Series: Part 5

Written by Mary Simmons, Technical Manager, SMSF Association

In part 4 of our property series, we discussed how using a fixed unit trust can enable an SMSF to acquire real estate which the SMSF may not otherwise have sufficient funds to acquire itself. It can also assist in diversifying your SMSF’s investment portfolio and to reduce any risk associated with partially owning the property.

We also focused on unrelated unit trusts which allow multiple investors, including SMSFs, to pool their resources together to share ownership of the investment. Unrelated unit trusts offer great flexibility in relation to what activity the unit trust can undertake but they do not offer the SMSF and its associates, control over those activities.

If structured correctly, an opportunity exists for your SMSF, it’s members and other associated investors to use a fixed unit trust to invest in property, which you collectively control. However, given the strict conditions which apply, its critically important that these types of arrangements (also known as ‘related trusts’) are structured correctly.

What is a related unit trust?

The primary advantage of investing in a related unit trust is that the members of your SMSF and their associates together, have control of the unit trust. This means that your SMSF and all ‘related parties’ together, have a fixed entitlement to more than 50% of the income and capital of the unit trust. It also means that the group of ‘related parties’ control the decisions of the unit trust trustee and that they have the power to appoint or remove the trustee of the unit trust.

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